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Cite as: [2023] ScotCS CSOH_22, 2023 GWD 12-123, [2023] CSOH 22

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OUTER HOUSE, COURT OF SESSION

[2023] CSOH 22

CA27/22

OPINION OF LORD CLARK

In the cause

(FIRST) PURSUIT MARKETING LIMITED, and (SECOND) YOUR SHORTLIST LIMITED

Pursuer

against

(FIRST) KYLE THOMSON, (SECOND) LAURA LOCHHEAD and (THIRD) MICHELLE

HODGE

Defender

Pursuers: Bowen KC, Brown; Campbell Smith LLP (for Bellwether Green, Solicitors)

First defender: Whyte; Balfour + Manson LLP

Second defender: Bradley; Urquharts, solicitors (for Livingston Brown, Solicitors)

Third defender: Kennedy; Drummond Miller LLP (for EMC, Solicitors)

21 March 2023

Introduction

[1]

The pursuers are two companies involved in the information technology industry.

They are subsidiaries within a group of companies. Employees of the first pursuer were, it

is averred, given access to the electronic information and databases maintained for each of

the subsidiaries, including the second pursuer. Initially, this action was raised against six

defenders. The first to fifth defenders were former employees of the first pursuer, who went

to work for a competitor company (the sixth defender). The pursuers raised this action

seeking various remedies against all of the defenders including interim interdicts, which

were granted. In due course, the pursuers and the fourth, fifth and sixth defenders reached

agreements to settle the action. The pursuers' case continues against the first, second and

third defenders.

Background

[2]

The contract of employment for the first pursuer's employees contains terms which

can be characterised as a restrictive covenant. For a period of six months after termination of

their employment, employees are obliged not to work for, or be involved with, a competitor;

not to canvass or solicit orders for goods or services from customers of the pursuers; and not

to entice or solicit away any employee of the first pursuer. The six-month period has now

expired and the interim interdicts granted on these terms are at an end.

[3]

The contract includes further clauses, which remain live. Clause 20.1 requires the

employees, during or after employment, not to use or disclose any confidential information

about the business or affairs of the first pursuer or any of its business contacts or about any

other matter the employee becomes aware of in the course of employment. Confidential

information for the purposes of clause 20 means any information or matter which is not in

the public domain and which relates to the affairs of the company or any of its business

contacts. Clause 27 prohibits the disclosure, again during or after employment, of any

information of a confidential nature relating to the employer, its customers or suppliers or

any third party which may have been obtained in the course of employment. Clause 27 also

requires the employee not to remove any documents or tangible items that belong to the

employer or which contain any confidential information, on termination of employment to

return all such documents and tangible items, and, if requested, to delete all confidential

information and destroy other documents and tangible information.

[4]

The conclusions in the summons set out orders sought by the pursuers in respect of

these clauses and a claim for payment of damages to the second pursuer in the sum

of £825,000, for which the defenders are said to be jointly and severally liable. The defenders

sought a diet of debate to challenge the relevancy and specification of the pursuers' case. At

the beginning of the debate hearing, senior counsel for the pursuers moved to abandon the

claim for damages. That motion was granted. Counsel for the first, second and third

defenders then sought dismissal of the pursuers' action on the remaining matters.

Orders sought by the pursuers

[5]

The pursuers seek interdict preventing disclosure of confidential information by the

remaining three defenders (conclusion 6). Orders are also sought against the first and

second defenders, but not the third defender, for the return of documents and information

(conclusion 7) and for the deletion of any copies (conclusion 8).

Case against the first defender

Submissions for the first defender

[6]

The pursuers admitted that there was no contract, or other commercial arrangement,

between the second pursuer and the first defender. It was not clear how any obligations of

confidentiality could exist in relation to the second pursuer. There were no averments of

duties or obligations owed by the first defender to the second pursuer arising out of his

employment with the first pursuer or following it. It was also for the second pursuer to

identify, with reasonable precision, the range of information that the pursuer seeks to

protect and articulate why that information is said to be of a confidential character worthy of

the law's protection, and to identify how the information was misappropriated and/or

misused. That was not done.

[7]

There was nothing averred that could possibly justify the court finding any

reasonable apprehension of future harm by the first defender to the pursuers. The pursuers'

averments were vague as to what files are said to have been copied, and which would be

affected by the order. The only mention in the summons is of files accessed and copied on

the first defender's last day of employment, although presumably he accessed others

throughout his employment. The pursuers' averments as to copying these files suffered

from fatal flaws. The expert report relied on by the pursuers was from a generalist IT firm,

which counsel was told had pre-existing links with the pursuers. One would have expected

a proper forensic IT consultant to give form and substance to what was said. There was no

specification as to what credentials the expert is said to have and he merely responded to a

series of questions posed by the pursuers.

Submissions for the pursuers

[8]

The context was that a number of former employees of the first pursuer moved to

work for a competitor, which was launching a business service almost identical to that of the

second pursuer. The pleadings set out the nature of the second pursuer's business and in

particular its unique character. The averments referred to precisely the sort of confidential

information the pursuers are entitled to get protection for, by the court. The first defender's

contract of employment covers use and misuse of such information. The dates and times

when the first defender previewed confidential documents are averred and it was incorrect

to say these were previewed as part of the employment when they were all previewed at the

same minute in time. There was expert evidence that it is reasonable to conclude that the

files were copied to another destination, however it could not be determined from the

information available where the files were copied to. The submission for the first defender

that the pursuers do not specify a case on misappropriation or misuse was erroneous. The

pursuers aver that this information was copied and the first defender then went to work for

the sixth defender, and thereby misused that confidential information.

Case against the second defender

Submissions for the second defender

[9]

The only possible relevant averments of fact in relation to conclusion 6 were

allegations of accessing and copying an information sheet regarding Sage, said to be one of

the second pursuer's partners. The pursuers' position is that the document was

"previewed" and the pursuers agreed that this suggests that it was neither printed nor

retained by the second defender. There is no averment that the second defender has used or

disclosed any information which is confidential to either pursuer, nor that the document

previewed was confidential to either pursuer. The second defender's call (to produce the

document itself and aver its commercial value) was unanswered. In any event, the second

pursuer was not her employer. Neither of the contractual terms relied upon provides

protection for any confidential information belonging to the second pursuer. On

conclusion 7, the pursuers have no relevant averment that the second defender copied any

document or file from the IT systems on which she worked while employed by the first

pursuer. The Sage sheet, on the pursuers' pleadings, is not confidential information. The

same point applies to conclusion 8.

Submissions for the pursuers

[10]

The second defender had access to confidential information she was privy to in the

course of her employment. It is averred that, on the last day she worked for the first

pursuer, she accessed and copied the information sheet regarding Sage, one of the second

pursuer's partners. The pursuers offered to prove that this is confidential information. She

had no involvement in the delivery of services to Sage and had no legitimate reason, or

permission, for accessing that information sheet. Reliance was again placed upon the expert

report. As she had no reason to preview the information the inference is that it was copied

to an external device.

Case against the third defender

Submissions for the third defender

[11]

There was no proper basis for the pursuers to infer either that the third defender has

used or disclosed information confidential to the second pursuer, or that the third defender

knew or should have known that the information was confidential. The pursuers did not

aver what confidential information the third defender is said to have specifically used or

why it was commercially sensitive information. The third defender was only a junior team

member with modest earnings and limited decision-making authority. She did not have a

substantial personal connection with relevant clients or knowledge of strategic information.

She was never exposed to company secrets, nor privy to confidential or commercially

sensitive information or data. There is no evidence of the third defender ever having

accessed the Group IT System and copying or removing any of the suggested information or

data.

[12]

In any event, enforcement of the terms of the third defender's contract would be

unreasonable, unnecessary and disproportionate. The terms were too wide in scope and

duration and could not be said to be reasonably necessary in order to protect the pursuers'

legitimate interests. The covenant in restraint of trade is unlawful and therefore

unenforceable. The protection sought against the third defender is an unreasonable

restriction on trade which is anti-competitive and thus contrary to public policy.

Submissions for the pursuers

[13]

The third defender was one of a number of the employees of the first pursuer who

went to work for a competitor and had commercially sensitive information regarding the

second pursuer's business model. The factual matrix was sufficient for the purposes of the

averment by the pursuers as to their apprehension that the third defender will misuse

confidential information. The only reasonable inference was that the third defender will use

information to assist the sixth defender in setting up a competing business.

Decision and reasons

General observations

[14]

Confidential information can be the subject of either express contractual terms,

implied terms, or, in England, an equitable obligation. While express contractual terms may

seek to identify or define the confidential information, the same approach to the legal

meaning of confidential information falls to be applied in all cases. Thus, where there is, as

here, a definition of what is confidential information (clause 20.1), that adds nothing to the

legal meaning of confidential information and such a clause cannot be used to make

something confidential when it is not, for example when it is part of the employee's skill and

general knowledge, rather than information that should be subject to protection.

[15]

That approach is well-established and I need not discuss the authorities in any detail.

As is explained by Megarry J in the frequently cited and approved decision in Coco v A N

Clark (Engineers) Ltd 1969 RPC 41, at 47, the information must firstly have the necessary

quality of confidence. That is sometimes described as involving "trade secrets" and

information of equivalent confidentiality to trade secrets, which are subject to an implied

duty of confidence that continues after termination of employment: Faccenda Chicken Ltd. v

Fowler [1987] Ch 117. At first blush, "trade secrets" may be taken to connote sophisticated

and highly important matters. But the necessary quality of confidence can apply to

information that is not common or public knowledge, not published, and not obvious, trivial

or useless.

[16]

The second point made by Megarry J is that the information must have been

imparted in circumstances importing an obligation of confidence. In other words, the

person receiving it, viewed objectively, should have appreciated that the information was

given for a limited purpose and is confidential. It is also very important that the confidential

information relied upon is identified, by stating what is said to be confidential. There are

two main reasons for this requirement to state what the confidential information is: firstly,

that if an interdict or order is being sought and it is of uncertain scope that can affect its

enforceability; and, secondly, it can also leave the defenders in doubt as to precisely what is

required of them. The issue of whether or not it is confidential can require evidence to be

led.

[17]

Conclusion 6 does not focus on copied material. Rather, it seeks interdict prohibiting

the defenders from using or disclosing to any third party any information which is in their

knowledge or possession, which was obtained in the course of their employment with the

first pursuer, and which is confidential to the first pursuer and the second pursuer and,

"without prejudice to the foregoing generality" twelve types of allegedly confidential

information not to be used or disclosed are stated.

[18]

Clauses 20.1 and 27 apply both during and after employment and so there is, at this

time, an extant duty not to use or disclose. No doubt if the pursuers were offering to prove,

on a relevant basis, that there had been actual use and disclosure of confidential information

that would strengthen their position on conclusion 6. But it is not necessary, in order for the

claim on conclusion 6 to be relevant, for it to be established that actual use and disclosure

has occurred or for there to be averments that it will necessarily occur. It will suffice if there

is a real apprehension that it will occur, in other words a good reason for considering there

to be a real likelihood of such use or disclosure, or a threat of such use, to the detriment of

the pursuers.

[19]

Conclusions 7 and 8 focus upon the information that is said to have been copied and

rely upon the first and second defenders having possession of that information, said to be

confidential, which they are obliged to return or delete.

The first and second defenders

[20]

The pursuer's averments against the first defender list the areas of commercially

sensitive information that he is said to have become aware of in the course of his

employment, as Business Development Manager. It is also averred that on the last day of

the first defender's employment with the first pursuer he "accessed and copied" from the

Group IT System thirteen pieces or areas of information and data referring to the second

pursuer's business. He is also said to have tried to log in to the Group IT System the day

after his employment ended with the first pursuer.

[21]

The pursuers aver that the second defender was, for a period, the Client Account

Manager and worked on the second pursuer's business. The areas of commercially sensitive

information which she became aware of while working are listed. It is averred that the

second defender accessed the Group IT System on the last day of her employment and

copied an information sheet regarding Sage. The second defender is said by the pursuers to

have had no involvement in the delivery of services to Sage and had no legitimate reason for

accessing that information sheet or any permission to copy it.

[22]

The averments state that the pursuers are apprehensive that the first and second

defenders have used, and disclosed to the sixth defender, the commercially sensitive

information they acquired while working for the first pursuer and are also apprehensive

that they have disclosed to the sixth defender the information and data copied from the

Group IT System.

[23]

The fact that there is no contract, or other commercial arrangement, between the

second pursuer and the first or second defenders does not preclude breaches of clauses 20.1

and 27. These clauses refer to confidential information about any of the first pursuer's

business contacts or relating to the first pursuer, its customers or suppliers, or any third

party. The pursuers aver that all staff are assigned to work on the business of the

subsidiaries and are given access to the electronic information and databases which are

maintained for each of the subsidiaries on the Group IT System.

[24]

As noted, twelve types of what are said to be confidential information are identified

in conclusion 6. The seven categories of "commercially sensitive information" to which the

first defender had access, and the nine to which the second defender had access, are also

listed. It is expressly averred against the first and second defenders that the commercially

sensitive information referred to and the information said to have been copied falls within

clauses 20.1 and 27 and therefore is confidential information. Ascertaining whether or not

this information is confidential will require assessment of all the evidence relating to matters

such as the nature of the employment, the character of the information, whether it is already

within the public domain and what harm, if any, is likely to be caused by its use and

disclosure. These identified types of information are potentially capable of being established

at a proof as being confidential. However, the reference in conclusion 6 to "without

prejudice to the foregoing generality" shows that the order is being sought in respect also of

unidentified confidential information. That part of the order is too widely expressed and the

order can only be granted in respect of the specific types of information listed in

conclusion 6.

[25]

Counsel for the first defender referred to Lux Traffic Controls v Healey 1994 SLT 1153,

in which Lord Abernethy (at p 1156) made reference to Faccenda Chicken Ltd. v Fowler about

what amounts to confidential information. However, after the passage in the latter case to

which counsel referred, it is made clear that in order to determine whether any particular

item of information falls within (in that case) the implied term, it is necessary to consider all

the circumstances of the case. That is the position here and it will be done at the proof.

While a simple and inspecific assertion of confidentiality may well fail, in the present case

the pursuers give sufficient support in their pleadings for the contention that information

made available to the first and second defenders and copied by them is confidential.

[26]

Whether or not, for the purposes of conclusion 6, there is a real apprehension of use

or disclosure will hinge on the matter of whether the information averred as having been

copied was indeed copied. It is possible that the pursuers will be able to establish, albeit by

inference, that the first and second defenders did copy the information and must have

intended to use or disclose that information, there being no other purpose for copying it. If

there is evidence of copying certain confidential information there may, on the whole

evidence yet to be heard, be a sufficient basis for the interdict in terms of conclusion 6

preventing use and disclosure of confidential information of the kind listed in the

conclusion.

[27]

In relation to the information alleged to have been misappropriated and misused, the

averments are about the first and second defenders having "accessed and copied" certain

information. The orders sought in conclusions 7 and 8 relate only to the information that

was allegedly copied. It is correct that the pursuers' expert advice refers to the documents

accessed by the first and second defenders being "previewed", but the averments proceed

upon the basis that it can be inferred that these were copied to another device. As noted, in

the pleadings this is alleged to be confidential information. I do not accept that the court

will be unable to find any reasonable apprehension of future harm by the first and second

defenders to the pursuers, that decision being largely dependent upon what is proved about

the conduct averred. The fact that copied information (if copying is proved to have

occurred) has not actually been used or disclosed will no doubt be relevant to consideration

at proof as to whether there remains a real apprehension of use or disclosure. The criticisms

of the expert evidence can also only properly be dealt with at the proof.

[28]

However, I reach a different conclusion on the relevancy of the pursuers' averments

that they are apprehensive that the first and second defenders have actually used, and

disclosed to the sixth defender, the commercially sensitive information which they acquired.

In a case such as the present, it is common to have averments about an apprehension of

disclosure at the outset when seeking interim interdict. The present case has gone on for a

substantial period of time. When one reaches the stage arrived it in this case, and there is no

averment and no suggested evidential basis of there actually having been use or disclosure,

no relevant case on the first or second defenders having actually used and disclosed the

information to the sixth defender is made out. While the copying of previewed information,

and its retention, can potentially be inferred, an inference of use or disclosure having

actually occurred based on the averments here cannot reasonably be drawn.

[29]

As the pursuers' case now founds upon contractual terms in the employment

contracts with the first pursuer and the case for damages for loss caused to the second

pursuer has been abandoned, it is unclear why the second pursuer has any continuing

ground of action. It is difficult to discern any such ground from the pleadings (which also

have a number of typographical errors referring to the second pursuer as the second

defender). However, I was not addressed on this matter.

[30]

Counsel for the first defender argued that the reference in the pursuers' pleadings to

it being "believed and averred" that the sixth defenders had used confidential information

given by the first and second defenders was irrelevant. In light of the conclusion reached on

relevancy of the pursuers' case on actual use and disclosure it is not necessary to consider

this point. Counsel for the first defender also referred to the first defender's averment, in

relation to copying, that the only device he used on the day in question was his company

laptop and that was returned the day after. This was met with a general denial by the

pursuers. Counsel argued that this was a matter plainly within the pursuers' knowledge

and so the general denial was ineffective and the point must be taken to be admitted. I do

not accept that submission. It seems clear, given the inferences relied upon, that the

pursuers cannot accept that the first defender had only one device and had no other means

of copying available to him.

[31]

For the reasons given, the pursuers have a relevant case for the orders sought in

conclusions 6, 7 and 8 in relation to the first and second defenders, but conclusion 6 is not

enforceable in respect of confidential information that is not listed in that conclusion.

The third defender

[32]

The case against the third defender differs from that against the first and second

defenders. It is not said that she accessed the Group IT System or previewed and copied any

specific information or data. No case is made against the third defender for the return or

deletion of specific information (conclusions 7 and 8 are not directed against this defender).

While it is averred that she had access to certain commercially sensitive information, there is

no more than an apprehension that she had actually used and disclosed such information.

Absent any averments about copying, there is no sufficient basis averred upon which any

inference of actual or likely breach of the contractual obligations can be drawn. The

pursuers' case against the third defender is irrelevant.

[33]

It is not necessary to consider the further point made on behalf of the third defender

that enforcement of the terms of the third defender's contract would be unreasonable,

unnecessary and disproportionate. In any event, these matters could not be determined

merely on the basis of the averments. More fundamentally, it is difficult to see how these

rigorous tests for enforcement of a restrictive covenant could have any bearing on the

matters arising from conclusions 6, 7 and 8.

Conclusions

[34]

For the reasons given, those parts of the pursuers' case against the first and second

defenders founded upon alleged removal of specific information, and the duties to return

and delete it, are not bound to fail. That is principally because there are averments of

accessing and copying previewed information which could be proved to be confidential.

There is also a relevant case that such copying can provide a basis for interdict against use or

disclosure of other identified confidential information, as a threatened breach. But the case

based upon use or disclosure having actually occurred cannot succeed. Whether the averred

position against the first and second defenders provides sufficient support to obtain the

orders sought remains to be determined at the proof. In contrast, the case against the third

defender has no sufficient foundation.

Disposal

[35]

I shall sustain the first pleas-in-law for the first and second defenders, to the extent of

excluding from probation the pursuers' averments that these defenders used and disclosed

information to the sixth defender. I shall repel the pursuers' pleas-in-law insofar as they

relate to the third defender and I shall sustain, in part, the third defender's first plea-in-law

and dismiss the action against her. All questions of expenses are reserved.